Are you thinking about buying a home but the idea of paying a monthly premium for mortgage insurance doesn’t exactly excite you? Or are you currently a homeowner looking to get rid of your monthly MI expense? You’re not alone.
NOBODY WANTS TO PAY MORTGAGE INSURANCE. AND YOU DON’T HAVE TO.
When you put less than a 20% down payment on a home, you’re required to pay mortgage insurance in order to get financed. Mortgage insurance is referred to as Private Mortgage insurance (PMI) on conventional loans and Mortgage Insurance Premium (MIP) on FHA Loans. In both cases, it’s an additional expense to the monthly principal and interest payments on your mortgage.
If you’re a homeowner currently paying mortgage insurance:
- PMI automatically ends once your loan balance goes down to 78% of the original loan value.
- MIP can be canceled after 11 years if you put more than 10% down on the original purchase.
- If your home’s value has increased or you have the additional funds to add to the transaction that will bring the LTV down to 80%, you could refinance to get out of paying mortgage insurance.
There may be other alternatives to getting rid of your Mortgage Insurance so talking to a loan consultant is a good idea.
If you’re a first time homebuyer:
- The obvious – put at least 20% down on the purchase of your home to avoid paying PMI.
- If you found your dream home and don’t have 20% down, you might consider looking at a less expensive home for your first purchase. That way you have the chance to let equity build in the home over time, so when you sell you’ll have more to put toward the down payment on your next home. Try looking at homes in a different area, with less square footage, or even a home that needs some renovations you’re willing to DIY.
- If you’re a military borrower, you can apply for a VA loan – those are excluded from paying mortgage insurance, though there is a possible VA Guaranty Fee.
- There’s also something called a piggyback loan that permits you to obtain a first and second mortgage towards your purchase to lower your down payment requirements.
- Another option is to wait. You can wait until you have more money saved, wait to see if home values come down, wait until you find a home in your price range, or talk to a loan consultant to confirm that waiting is the best option for you.
Even though you may not set out to pay PMI, it’s actually not a bad thing. PMI and MIP make buying a home possible – you just have to pay a premium to offset the risk with a lender. Plus, they’re not forever.
If you take into consideration the improvement to your living situation, or the potential to build home equity, the temporary expense of mortgage insurance may not be bad. You may have more options than you know- so talk to a loan consultant about your goals. Get in touch with us today and learn how we can help you achieve your homeownership dream, or discuss your options for getting rid of MI.